Question

If the economy is in equilibrium at a level above its potential GDP level, it is...

If the economy is in equilibrium at a level above its potential GDP level, it is experiencing:

Select one:

a. an inflationary (expansionary) gap.

b. a supply shock.

c. a recessionary (contractionary) gap.

d. a productivity expansion.

Homework Answers

Answer #1

Answer- Correct option is 'a'

If the economy is in equilibrium at a level above its potential GDP level, it is experiencing an inflationary (expansionary) gap. An economy that operates above its full employment equilibrium means it produces goods and services at a higher rate than its potential or long run average levels as measured by its GDP. This is a situation of inflationary gap, because the relative increase in real GDP cause an economy to increase its consumption, which cause price to rise in long run. When the real GDP is higher than the potential GDP is, the gap is referred to as a inflationary gap.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An economy is in long-run macroeconomic equilibrium, with output at Yp, when the following aggregate demand...
An economy is in long-run macroeconomic equilibrium, with output at Yp, when the following aggregate demand shock occurs: The quantity of money in the economy declines and interest rates increase. What kind of gap (inflationary or recessionary) will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? This will cause an inflationary gap; an expansionary policy should be used. This will cause a recessionary gap; an expansionary policy...
1. Of these statements about the potential GDP line, which is incorrect? a) The potential GDP...
1. Of these statements about the potential GDP line, which is incorrect? a) The potential GDP line is a vertical line. b) The potential GDP line indicates the quantity of output the economy can produce c) The potential GDP line makes the assumption that it is at less than full employment of its physical capital and labor. 2. If a Keynesian economist is advocating the current economic policy be to increase government spending, what is the state of the current...
9. Suppose that current short run equilibrium GDP is at $181B but potential (long run) GDP...
9. Suppose that current short run equilibrium GDP is at $181B but potential (long run) GDP is $179B. What is the size and type of the economic gap? a. Recessionary Gap of -$2B b. Inflationary Gap of -$2B c. Recessionary Gap of +$2B d. Inflationary Gap of +$2B. _____ 10. Which of the following statements about financial institutions in the US is true? a. Credit Unions can limit their membership. b. The number of Savings & Loans has been increasing...
Is the difference between the equilibrium gdp and potential gdp referred to as a gdp gap...
Is the difference between the equilibrium gdp and potential gdp referred to as a gdp gap or recessionary gap? Also, interest rates spread between long-term and short-term treasury bills a.) are lagging indicators b.) are good predictors of recession c.) are countercylical d.) all of the above
QUESTION 50 Government policy designed to stimulate the economy (move it back to long run equilibrium)...
QUESTION 50 Government policy designed to stimulate the economy (move it back to long run equilibrium) is called a. bogo policy b. expansionary policy c. recessionary policy d. contractionary policy 1 points    QUESTION 51 Two Part Question 1. What is a recessionary gap? (Be sure to include in your answer a discussion of actual and potential GDP) 2. What is an inflationary gap?  (Be sure to include in your answer a discussion of actual and potential GDP) 10 points   ...
If real GDP at full employment is $5 billion while current GDP is $6 billion, a(n)...
If real GDP at full employment is $5 billion while current GDP is $6 billion, a(n) _____ exists, and will require a _____ in spending to bring the economy back to full employment. a) recessionary gap; decrease b) recessionary gap; increase c) inflationary gap; decrease d) inflationary gap; increase
If equilibrium real GDP is less than its long-run level: A. there is a recessionary gap....
If equilibrium real GDP is less than its long-run level: A. there is a recessionary gap. B. the economy is not in macroeconomic equilibrium. C. the economy is in an unemployment equilibrium. D. both (a) and (c). 1 points    QUESTION 6 Stagflation is a period of: A. rising unemployment and rising prices. B. falling unemployment and falling prices. C. rising unemployment and falling prices. D. falling unemployment and rising prices. 1 points    QUESTION 7 The GDP (Y) of...
Assume that there are two economies, A and B. Economy A is experiencing an inflationary output...
Assume that there are two economies, A and B. Economy A is experiencing an inflationary output gap, and economy B is experiencing a recessionary output gap. Illustrate the two economies in labeled graphs. Explain what will happen to wages and other factor prices in economy A and if this will increase or decrease firm's unit cost. Given your answer in (b) show the effects on the AS curve. Explain what happens to real GDP and the price level. Explain what...
5- If an economy is in short-run equilibrium where the level of real GDP is less...
5- If an economy is in short-run equilibrium where the level of real GDP is less than potential output, then, in the long run, one will find: A-Nominal wages will rise and the SRAS curve will shift left bringing the economy back to its potential real GDP. B-Nominal wages will rise shifting the AD curve to the right and restoring real GDP to its potential level C-Nominal wages will fall and the SRAS curve will shift right bringing the economy...
The adjustment of the economy to potential real GDP in the long run from a level...
The adjustment of the economy to potential real GDP in the long run from a level of real GDP above potential real GDP occurs as nominal wages​ ________, shifting the​ short-run aggregate supply curve to the​ ________. A. ​fall; left B. ​fall; right C. ​rise; right D. ​rise; left
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT